Outer House withdraws appointment of interim judicial factor in dispute over management of scrap dealer

About this case:

• Citation:
  [2024] CSOH 97
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Braid

Petitioner Rodney McAllister sought to dissolve the Panda Rose Metals partnership after relations with three other partners, the second to fourth respondents, broke down, and had an interim factor appointed ex parte on the basis of financial misconduct by the respondents. The second to fourth respondents sought to recall the appointment on the basis that the petitioner had not disclosed the full circumstances behind the application.

The petition was considered by Lord Braid. Ower KC appeared for the petitioner, Barne KC for the second respondent, Thomson KC for the third and fourth respondents, and Lord Davidson of Glen Clova KC for the interim judicial factor. No representations were made by the first respondent.

Remedy of last resort

The petitioner was until 2019 a partner, along with his parents and three of his brothers, in the firm Panda Rosa Metals. That firm, a partnership at will, was dissolved on the death of the petitioner’s father, with the remaining partners agreeing to form a new partnership at will under the same name to carry on in the scrap metal business. Differences later arose between the petitioner and his brothers to the extent that the petitioner sought to have the partnership dissolved.

On 2 October 2024 on the petitioner’s ex parte motion, which was not intimated to the respondents, Lord Braid appointed an interim judicial factor. The account given at the ex parte hearing by counsel for the petitioner was that the petitioner was being denied access to financial information about the firm in circumstances where “dubious” payments were being made by the second to fourth respondents to themselves and others.

At the ex parte hearing, Lord Braid found that the situation was sufficiently urgent to justify the appointment of an interim judicial factor. However, on the application to recall, senior counsel for the respondents submitted that the petitioner had not made a full and frank disclosure of the complete circumstances behind the application, and that in any event the situation did not merit a remedy of last resort, especially as the partnership was still trading.

Counsel for the respondents submitted that the petitioner had failed to disclose that there were genuine disputes in relation to a number of issues, including entitlement to shares of profits following their father’s death, and these failures were such that the appointment should be recalled. The suggestion that the petitioner had been excluded from the business was unjustified.

Cure worse than disease

In his decision, Lord Braid began by outlining the law on the matter: “There is a duty of full and frank disclosure on the part of any person seeking an urgent remedy from the court at an ex parte hearing. Where there is a failure to make full and frank disclosure, it may be so serious that the only proper response is to discharge the order even though on all the evidence the test for making the order is now met.”

He continued: “While the affairs of the partnership are mired in confusion, there is no getting away from the fact that the petitioner did fail to disclose that, whatever his other complaints, he had been given full access to the accounting records of the firm and was being invited to partners’ meetings. It is common ground between the parties that the firm’s accounting and financial practices leave a great deal to be desired from which it follows that no inference adverse to the respondents can be drawn from the fact that the petitioner’s accountant may be unable to answer all of the petitioner’s queries about the financial performance of the firm.”

Assessing whether the full circumstances merited an appointment, Lord Braid said: “I tend to agree with the view that it is likely to be more difficult to establish necessity where there is an ongoing business, particularly one which is profitable, bearing in mind that the mere fact of the appointment may bring about the partnership’s demise, to no-one’s benefit; or, as Lord President Cooper put it, in Elder v Elder and Watson Ltd (1952), in the context of a Companies Act petition, the cure may be worse than the disease.”

He concluded: “Having heard the respondents’ side of the story, it no longer seems to me that it can be said that there is such deadlock between the partners as to justify appointment of a factor at this stage. Disagreement on many issues is not the same as deadlock. For all these reasons, I have concluded that the circumstances do not justify the continuing appointment of an interim judicial factor.”

Lord Braid therefore recalled the appointment of the interim factor and found the petitioner liable for their fees and outlays.